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Sun to Spend &#36;200M Moving to Oracle 11i

The first phase goes live in July 2007; the company expects to see major savings from the move in fiscal 2009 and beyond.

SAN FRANCISCO—Sun Microsystems will spend more than $200 million consolidating all of its internal business applications onto Oracle 11i and, while the move is expected to generate minimal savings in fiscal year 2008, it should yield major savings in fiscal year 2009 and beyond.

In a presentation at Suns annual analyst summit here on Feb. 6, Sun Chief Financial Officer Michael Lehman said this IBIS implementation was the biggest single productivity change taking place inside the company.

"Also, for the first time ever, the entire company will run on a single, common business application system and platform. The first phase will go live on Oracle in July, the first quarter of fiscal 2008, starting with service systems and ledgers," Lehman said.

That first deployment will see 1,000 non-Oracle systems inside Sun being turned off, which will be a big savings, but the move goes far beyond that and will touch everything the company does from a process standpoint, he said.

"It is also a little early to say exactly what the benefits will be, but as we will have spent some $200 million by the time this is done, we do expect a payback on this investment in 18 to 24 months after the third, and final, phase is deployed in the first quarter of fiscal 2009," he said.

Lehman admitted to past mistakes, particularly the fact that the company had "not executed perfectly in the past, particularly in the storage arena, and we, as a team, are aware of that and are working on fixing it."

The companys cost structure also remains too high, an area that is also being worked on, Lehman said, pointing particularly to SG&E (Selling, General and Administrative Expenses) and R&D, both of which are still too high in terms of the returns being generated.

"But there will not be a big layoff just to lower the numbers," he said, adding that Sun will spend less on R&D in the future, and that such spending will decrease as a percentage of revenue over time.

But, on the positive side, Suns product quality is better than it has ever been, he said, while the company is incurring less cost from its warranty program. The services team is also delivering in a more efficient way, all of which contributed to improved gross margins, which will be maintained or improved, Lehman said.

While growth through acquisition is not necessarily at the forefront of Suns current strategy, "We do appreciate that inorganic growth is a way to drive business and grow the company," he said.

In his presentation, Sun CEO Jonathan Schwartz said the competitive opportunity for the company lies squarely with the data center, where enterprises choose to pay for the software they are unwilling—and scared—to run for free.

"There is a definitive rise of a general-purpose system in the storage marketplace, such as our Thumper storage/server appliance, which allows highly differentiated products to be built. If you think about Suns core intellectual property assets, our core business is that we meet customers at the edge," he said.

While Sun is not happy with its performance in the storage market to date, "Storage is ripe for redevelopment now, ours and everybody elses," Schwartz said.

But Schwartz noted that it is also not possible to take customers from the edge and try to lock them into the center, as "thats not what customers want or need today."

Sun has also been looking to acquire technologies that facilitate the rapid evolution of the data center—and Suns growth—and not companies with large body counts, he said.

There are currently three operating systems gaining share in the market today: Red Hat Linux, Solaris and Microsoft Windows, Schwartz said. "These are the three platforms most developers are likely to target when looking to run infrastructure, and so these are the ones that we are targeting. … It is clear to me that volume drives value, and there is no hard link between the software we distribute and a purchase of our hardware, so our software assets must be monetized by running on any hardware in the market," he said.

Schwartz also noted that one of his priorities was establishing relationships around Solaris with some of its peers in the marketplace, including rival Hewlett-Packard.

With regard to the current virtualization phenomenon, Schwartz said, "Virtualization is an apology from the software industry, because we blew it. We allowed customers to run their servers at just 15 percent utilization."

Schwartz then discussed Suns first virtualized data center, known as Project Blackbox, which is housed in a standard 20-foot shipping container.

This modular data center is designed to allow customers to locate computing resources whenever and wherever they want them. And is deployable in one-tenth of the time it takes to design, build and deploy a traditional data center, according to literature handed out at the analyst summit.

However, customers have flexibility in determining how their Project Blackbox containers are configured and the performance they can deliver.

One container can hold 120 SunFire T2000 systems with 2,000 cores and 8,000 simultaneous threads. Some 250 CoolThreads technology-based servers also support four times the number of Web users and provides five times the efficiency of the same number of similarly configured Dell Xeon servers, the literature said.

Customers are also expected to save about $1,000 per CoolThreads technology-based system per year in energy costs over traditional data centers, while customers in Northern California qualify for energy rebates of up to $240,000 if they upgrade from Xeon-based systems to Sun Fire CoolThreads technology-based servers in Project Blackbox, according to the literature.

Project Blackbox also supports 7 terabytes of memory, runs Solaris, Linux and Windows, and can hold up to 1,000 x64 cores and provide management and support for up to 10,000 simultaneous desktop users without administrators, while hosting a configuration that places it among the 200 fastest supercomputers in the world, the literature said.

In conclusion, Schwartz said his goals over the next year include making more money, increasing volume and value, going after new markets and customers, leveraging more partners and accelerating Suns business by taking actions like simplifying its product line.

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